RBC forecasts Canadian housing market will cool in 2015 if interest rates rise

In its latest Canadian housing forecast, the bank (TSX:RY) says Canada’s current historically low interest rates are not “sustainable” and it forecasts longer-term interest rates will rise by the end of the year in anticipation of a return to tightening mode by the Bank of Canada in 2015.

RBC says if current rates rise, it anticipates home resales to fall by 0.9 per cent to 463,100 units next year following an increase of 2.1 per cent to 467,200 units in 2014, while it sees home prices increasing just 1.1 per cent in 2015, compared with a jump of 4.3 per cent this year.

RBC describes those developments as a cooling not a crash in the housing market, which is supported by a variety of other factors, including steady immigration rates and good employment outlook.

The report said condo construction, particularly in the major cities, will be one of the main reasons the housing market will slow in 2015 as more units become available.

It cautioned that although there will be slowdown in 2015, the big impact on the Canadian housing market will be likely not be seen until 2016 once higher interest rates are “normalized.”